5 top tips if planning to invest in commercial property

• Published date: 29 June 2023
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Real Estate
• Law Firm: Cavell Leitch
• Author: Ms Ann-Maria Buckley and Elliot Scott

In this article we provide you with 5 top tips to consider if you are looking to invest in commercial property.

Tip 1: The Location

You need to have a good understanding of the area in which the property is located as you need to consider the types of tenants that you might attract or want to retain. Is it in a well-established area where there is already good leasing stock? Perhaps it is an up-and-coming area where you could attract solid tenants in the future with the rise in popularity of the area. What are the surrounding buildings like and who leases them? You will need to consider the zoning of the area and how accessible it is from a roading and traffic point of view. What are future plans for this area and how will they impact your investment?

Tip 2: The Building Itself

An inspection by a suitably qualified professional of the building, fixtures and fittings and chattels is essential. With commercial property, you will also need to consider the following:

Structural Integrity/Strength of the Building

You need to either commission your own Detailed Engineering Evaluation (DEE) report or have the vendors assigned to you on settlement indicating what % New Building Standards (NBS) the building is. This is important so that you are aware of the requirements and timeframe imposed by the relevant Council to upgrade the building to 67% NBS if applicable but also so that you can provide this information to tenants looking to lease the premises, an increasingly more common enquiry. Many older buildings will be below 67% the new minimum required for buildings. In addition, your lender may need to approve the DEE before an offer of finance will be made. You should also be aware that it is becoming more difficult to source commercial property finance from Banks these days, especially for buildings that are less than 67% of NBS.

Asbestos

A further issue to consider with commercial buildings is whether there is asbestos present in the building, it was commonly used in roofing. Current Health and Safety regulations now require property owners where asbestos is present to have an Asbestos Management Plan, so you will need to be fully aware of the extent of asbestos and consider the costs associated with ongoing compliance with these health and safety requirements. The presence of asbestos can also be off-putting for Tenants.

Earthquake Repairs

If the property is located in Canterbury or the Upper South Island/Wellington areas enquiries should be made as to...